Brave New World for Local Governments: No 2% Salary Caps for Cops, Firefighters

John Reitmeyer | August 1, 2019 | Budget
County and municipal officials meet in Trenton to get schooled in best ways to negotiate with labor unions now that 2 percent arbitration cap no longer available

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Firefighters
A statewide policy that helped limit wage hikes for police officers and firefighters drew praise for curbing annual property-tax increases before it was allowed to expire over a year ago.

But even though the cap has fallen off the State House radar, it continues to be a big deal for local governments negotiating labor contracts that impact the taxpayers’ bottom line.

Dozens of local officials got together in Trenton yesterday to discuss the best ways to navigate labor issues under the new rules, which no longer give the advantage to county and municipal governments. In fact, the workshop organized by the New Jersey Association of Counties drew so much interest that a second session had to be scheduled.

So far, no arbitration awards have strayed too far from the 2 percent limit that was in place from 2011 to 2017. But the local officials were told to make sure they are doing their homework when dealing with union negotiators since they no longer have the 2 percent cap serving as a backstop.

“At the end of day, it’s a cliché, but be prepared,” said Joseph Hannon, an attorney who practices labor law and appears often before the state Public Employment Relations Commission (PERC).

Not allowed to strike

Police officers and professional firefighters are, by law, not allowed to strike in New Jersey when they cannot reach new contract agreements with local governments. Instead, the unions and government officials can opt for interest arbitration when they reach an impasse, leaving the size of an annual salary increase up to an arbitrator.

A 2011 property-tax reform authored by former Gov. Chris Christie prevented arbitrators from awarding annual increases of more than 2 percent. It was part of a “toolkit” initiative that Christie championed to combat annual property-tax increases that were topping 7 percent on average in New Jersey.

Other reforms enacted by Christie included a broader 2 percent cap on local property-tax hikes. Those initiatives were credited as key factors as the rate of growth in average property tax bills slowed in recent years.

Coming up for review

But unlike the permanent cap on property-tax hikes, the 2 percent arbitration cap was to be renewed periodically. After it expired in 2014, Christie worked with Democrats in the Legislature to renew it so there would be no interruption. But he was unable to convince legislative leaders to do so a second time, and the cap ran out at the end of 2017. (Renewing it has not been a top priority for Gov. Phil Murphy, who has instead made increased funding for K-12 education a key strategy for easing pressure on property-tax hikes.)

A report issued in 2017 by some members of a task force convened to study how effective the arbitration cap was determined that taxpayers saved a combined $530 million by curbing annual salary increases even as New Jersey police officers and firefighters remained among the highest paid in the country.

Credit: NJTV News
State Sen. Declan O'Scanlon (R-Monmouth)
Sen. Declan O’Scanlon, a Republican from Monmouth County who served on the task force, pointed to that report yesterday as he questioned the wisdom of keeping the 2 percent limit on property-tax increases even as the arbitration cap was allowed to expire. He told local government leaders he fears they will eventually be forced by arbitrators to enact wage hikes that soar beyond 2 percent. At the same time, he cautioned, that since property taxes can’t rise by more than 2 percent annually, local governments will be forced to lay off employees to keep budgets in balance.

“In most small municipalities and medium-sized municipalities, there’s not a lot of other places to cut,” O’Scanlon said.

So far, there have been only three contract awards issued by state arbitrators without the arbitration cap in place. They have resolved contract disputes in Bedminster, Hopewell and West Windsor; none have pushed too far beyond 2 percent. But many are expecting the awards to slowly creep up as union leaders begin to push the envelope in arbitration.

Before the 2 percent limit on arbitration awards, effective salary increases could run much higher due to adjustments for things like longevity, said Matthew Giacobbe, a principal partner with Matawan-based Cleary, Giacobbe, Alfier & Jacobs.

“Nobody was looking at the score,” Giacobbe said. “People were just giving out money.”

He and other speakers yesterday urged the local officials to fully understand how any new contract will impact long-term expenses, including employee pension and healthcare costs. Maintaining more esoteric budget items like surplus funds, which are used to hedge against unexpected revenue drop-offs or other emergencies, is also important.

“You need to be aware of what that economic impact is,” said Gabriela Simoes Dos Santos, who serves as the chief financial officer in Harrison.